All posts by Gary Stockton
About the Main Street Report Experian and Oxford Economics have released the Q4 2023 Main Street Report. The report brings deep insight into the overall financial well-being of the small-business landscape, as well as providing commentary around what specific trends mean for credit grantors and the small-business community. Critical factors in the Main Street Report include a combination of business credit data (credit balances, delinquency rates, utilization rates, etc.) and macroeconomic information (employment rates, income, retail sales, industrial production, etc.). Q4 Report Highlights As we reflect on the journey of the American economy through the last quarter of 2023 and look ahead to 2024, it's clear that the resilience and adaptability of small businesses and consumers have been nothing short of remarkable. Despite facing challenges such as inflation and tighter lending conditions, the entrepreneurial spirit that defines Main Street has not only endured but is poised for growth. Unwavering Consumer Confidence Spurs Economic Optimism The U.S. economy, riding on the robustness of consumer spending, has once again demonstrated its strength. Consumers have outpaced holiday spending expectations, injecting vital liquidity into small businesses. This surge in spending has enabled these businesses to pay down debt and pivot towards capital expenditure and strategic growth planning for the coming year. The foundation of our economic optimism is solidified by the expected continuation of consumer support, bolstered by a strong labor market, and rising disposable incomes. Main Street Report Points to Easing Delinquency Among Small Businesses In the latest report, Oxford Economics anticipates an improved economic backdrop, along with a shift towards easier financing conditions, will keep the rise in corporate delinquencies muted and limit the normalization of bankruptcies over the coming year. Possibility of Changing Fed Policies Bodes Well for Innovation While headwinds such as inflation and cautious lending persist, the horizon is bright for small businesses. The Federal Reserve's anticipated policy adjustments, alongside a resilient consumer base, provide a green light for investment and growth. The adaptability and forward-thinking approach of small businesses will be crucial in harnessing these opportunities, driving not only their success but also contributing to the broader economic prosperity. Let It Grow As we stand on the threshold of 2024, the U.S. economy, powered by the dynamism of Main Street, is preparing to embark on a season of growth. The challenges of the past have paved the way for a future marked by resilience, innovation, and optimism. Small businesses, supported by a strong economic foundation and favorable policies, are set to lead the charge in driving forward the American dream. Download Your Copy of the Q4 2023 Main Street Report Today!
Get the latest quarterly small business credit trends Mark your calendars! Experian and Oxford Economics will discuss small business credit conditions when we present key findings in the latest Main Street Report for Q4 2023 during the Quarterly Business Credit Review. Michael Pearce, Oxford’s Lead U.S. Economist, will share his take on Experian’s most recent small business credit data and offer a macroeconomic outlook for the coming quarter. Brodie Oldham, Experian’s V.P. of Commercial Data Science, will cover commercial credit trends. Q4 2023 Main Street Report The Q4 2023 Experian/Oxford Economics Main Street report will be released on February 27th. If you are not already subscribed to thought leadership updates, be sure to sign up for updates on our Commercial Insights Hub.
The Beyond the Trends report highlights indicators which offer insights on labor, prices, commercial credit and economic conditions.
Retail sales reached a 4-year high of over $615B in December 2023 with yearly retail sales growing 4.6%. At the same time, lenders are tightening credit and businesses within the retail sector are showing signs of stress with higher late-stage delinquency rates and falling commercial credit scores. We see retailers seeking commercial credit less often, new originations slowing and lower lines over the past several months. As retail sales continue to rise so does the proportion of online retail sales. Online sales peaked during the COVID-19 pandemic and fell slightly once the lockdowns were lifted. Online retail sales remain approximately 56% higher than pre-pandemic levels and are trending up and may soon exceed 2020 levels. Growth in online retail sales has led to growth in retail returns. Retail returns peaked in 2022 at over $800MM and over 16% of total retail sales. Prior to 2021, retail returns as a percentage of retail sales averaged 8.9%, since 2021 that rate has grown to 14.6%. As returns increase so do fraudulent returns. Retailers have implemented strategies and solutions to address retail returns which resulted in a decrease in return dollars between 2022 and 2023 yet the percentage of returns that were fraudulent increased from 10.2% to 13.7% or over $100B. Increases in both legitimate and fraudulent returns are prompting retailers to identity solutions and operational strategies to slow growth across all returns. What I am watching: The U.S. economy expanded 3.3% in Q4 2023, and 2023 real GDP increased 2.5% over 2022. Strong consumer spending fueled the economy. Multiple sources are expecting The Federal Reserve to cut interest rates up to six times in 2024 with the rate cuts beginning in Q2 2024 and continuing into 2025. Lower interest rates likely means that consumer spending will continue at an elevated rate. As spending continues to increase, specifically in the retail sector, the need for commercial credit could continue to slow as cash-flows satisfy operational capital requirements. Cash on hand should begin to satisfy outstanding delinquencies, improving commercial credit scores resulting in improved access to commercial credit.
Small business owners’ optimism remains low due to concerns about the economy and credit conditions. According to the NFIB survey, business owners do not expect current business conditions to improve in the coming months and report that financing is their top business problem. Stringent credit underwriting policies are creating an environment where owners’ current borrowing needsare not met. According to the Federal Reserve’s SLOOS report, many lenders were loosening credit policies in mid-2022, making credit readily available to small business owners. As inflation and interest rates began to rise, commercial credit delinquencies began to increase at a rapid pace and lenders tightened credit underwriting criteria to mitigate accelerated risk. It appears that efforts have worked. Across most commercial credit financial products, the increase in delinquency rates slowed over the past few months. The loans originated under the tighter underwriting is proving to be lower risk. At the same time, account closures have increased suggesting that high risk default accounts are being removed from lenders portfolio’s thus leveling late-stage delinquency curves. As observed in the commercial credit cards space, late-stage delinquencies are leveling out. Lenders continue to issue commercial cards to lower-risk borrowers and while the average loan/line amount for all other financial products has been decreasing month over month, commercial card limits have increased. Monthly lower risk commercial card originations coupled with monthly high risk commercial card account closures is in part slowing and leveling late-stage delinquency rates in the commercial credit market. What I am watching The commercial credit market could shift in 2024. As reported in the SLOOS survey, while lenders are still tightening credit, fewer of them tightened in Q4 2023. If the economy can achieve a “soft-landing” rather than go into recession, lenders will be even more likely to loosen credit standards. The Federal Reserve is expected to start reducing interest rates in 2024, thereby making borrowingmore affordable. According to the December NFIB survey, business owners are planning capital outlays, increases in inventory, increases in hiring in the coming months but require commercial credit to do so. These business expansions will rely on the availability of credit.
As new car production is finally nearing pre-pandemic levels, supply is catching up to demand. For many potential new car buyers that held off because of the tremendous mark-up on new and usedcars during the pandemic, the beginning trend of new car incentives and discounts is welcoming. However, the increase in car loan interest rates are eating up any incentives being offered, and those consumers who have patiently waited are actually worse off now than if they had purchased a car during the past couple of years. Many consumers did purchase cars during the pandemic, driven by necessity. During the pandemic, jobs were lost due to business shuts downs, and many were forced to seek new job opportunities. As remote work became the new normal and the demand for delivery of food and products skyrocketed, people purchased cars at marked up prices to employ themselves to meet this increasing demand. It turned out to be a good business decision as higher interest rates now make car purchasing an even more expensive experience. What I am watching: It will be interesting to see how quickly the automotive industry and car dealers increase the incentives to offset the increased cost of borrowing to purchase a car. After the aggressive interest rate increases by the Federal Reserve to combat inflation over the past 18 months, there is rumbling that the Fed will soon begin cutting rates. If interest rates come down and borrowing for auto loans is more reasonable, the increase in demand will be a welcome sight for the auto sector that finally was able to ramp up supply.
Experian and Oxford Economics Main Street Report for Q3 shows signs of slowdown despite strong Q3 expansion and changing credit conditions.
The aggressive interest rate hikes instituted by the Federal Reserve over the past year and a half may have achieved the desired goal. Easing inflation (3.2% in October) and strong GDP growth (4.9% in Q3) are some of the first indications that the economy may experience the “soft landing” hoped for instead of a recession. The consistently strong labor market produced low unemployment and increasing wages, enabling personal spending to increase. However, while spending continues to grow, the growth rate is on a downward trend. The high rate of spending has been driven by consumers digging into savings and borrowing more. As savings dwindle and the cost to borrow increases, it is likely that consumers will retreat and the pull-back will likely hit discretionary categories first. What I am watching: Heading into the holiday season, consumer spending is still strong but how long will it last? The National Retail Federation is projecting that November and December retail sales will grow 3-4% which is in line with the 3.6% average increase from 2010-2019 but lower than the past three years. People are already dipping into savings and borrowing more to continue their consumption but that well will run dry at some point. In addition, 36% of consumers cite December is a month for seasonal financial distress, according to PYMNTS. While consumers may continue spending through the holiday season, the tide may turn in early 2024 when bills hit with higher interest rates. Download Full Report Download the latest version of the Commercial Pulse Report here. Better yet, subscribe so you'll get it in your inbox every time it releases, or once a month as you choose.
Get the latest quarterly small business credit trends Mark your calendars! Experian and Oxford Economics will discuss small business credit conditions when we present key findings in the latest Main Street Report for Q3 2023 during the Quarterly Business Credit Review. Michael Pearce, Oxford’s Lead U.S. Economist, will share his take on Experian’s most recent small business credit data and offer a macroeconomic outlook for the coming quarter. Brodie Oldham, Experian’s V.P. of Commercial Data Science, will cover commercial credit trends. Q3 2023 Main Street Report The Q3 2023 Experian/Oxford Economics Main Street report will be released on November 30th. If you are not already subscribed to thought leadership updates, be sure to sign up for updates on our Commercial Insights Hub.
